Hi Brad, After reading this, I cxl'd my GTC buy at .77... who needs it?
Fear and loathing in Kebbledom
By: Barry Sergeant 16-AUG-05 14:59'
JOHANNESBURG (Mineweb.com) -- Randgold & Exploration (R&E) crashed 15% on Nasdaq on Monday, to multi-year lows of $1 a share, as specialist investors freely speculated that the company’s “20-F” annual report filing with the US’s Securities & Exchange Commission (SEC) would not materialize, and/or that if indeed it did, it would be some kind of an ugly swamp creature.
Following threats that R&E would be delisted from Nasdaq, Brett Kebble, CEO of R&E and related companies, made representations (last Thursday, it is believed) to Nasdaq, but nothing has been heard since. Kebble is not returning calls, and may have gone to ground, at least in some senses, as the “Kebbledom” constructed by him and his father, Roger, a decade ago, teeters.
Last year, after the filing of excuses (the “NT 20-F” form) with the SEC, R&E filed its 2004 20-F on July 15, 2004, two weeks after deadline. It seems that the 2005 20-F, for the year to December 31, 2004, is unlikely to be signed – without qualification - by auditors. Nothing has been heard from R&E’s sponsoring brokers.
It is hardly trite that when R&E closed 15% down for the day on Monday, its market capitalization was just $75-m, nearly $800-m less than Randgold Resources, the company R&E incubated and of which it owned entirely just ten years ago.
R&E started selling down its stake in Randgold Resources upon the latter’s listing on the London Stock Exchange in 1997. The selling has never stopped, and R&E’s exact existing stake in Randgold Resources is, by all accounts, the finger on the trigger of pending asset strips in Kebbledom - R&E itself, along with JCI and Western Areas. Brett Kebble is CEO of all three, and runs each as if part of an indivisible back yard.
It was footnote two on page 65 of the latest Randgold Resources 20-F annual report, filed in the US on June 30, 2005, that pointed to how 14.4m shares in Randgold Resources could not be attributed to R&E, which claims ownership. For many months, R&E has stated that it holds 18.4 million (31% of the total) shares in Randgold Resources, currently worth $280 million. According to Randgold Resources, R&E holds 4 million shares in RRL; period.
The “missing” 14.4 million shares, currently worth $210 million, nearly three times the market capitalization of R&E, may thus be at the heart of the apparent meltdown in Kebbledom. In a detailed interview on July 7, Brett Kebble said that most of the missing shares had in fact been sold, but that R&E remained the “beneficial” owner of all the disputed shares.
What else could Kebble say? After all, R&E filed a Schedule 13G/A on February 14, 2005, with the SEC, which reported beneficial ownership of 18.4 million Randgold Resources shares. According to those closest to the action, 9.9 million of the disputed shares, connected with a black economic empowerment (BEE) transaction, were sold during the third quarter of 2004. The stock disappeared into a swamp occupied by two names, Bookmark, and a key BEE entity, Inkwenkwezi.
Given the no-nonsense rules of corporate governance now prevailing in the US (not least Sarbanes Oxley), what auditor, or other signatory, is likely to ever wet the ink on R&E’s 2005 20-F? Both R&E and JCI have been suspended from the Johannesburg bourse for some time, also for failing to file various documents on time.
Some have predicted the implosion of the Kebble empire for years, but such a possible point has probably never been closer from a liquidity viewpoint. At the center of Kebbledom sits Western Areas, with its 50% interest in the South Deep joint venture, along with Canada’s Placer Dome. The development of the South Deep Twin-Shaft Complex, near Johannesburg, took over nine years to complete, at a cost of about R4 billion ($580 million), leaving the company with net current liabilities of at least R300 million.
During 2001, around the trough of the current gold price cycle, Western Areas bought a hectic number of derivatives to assist funding of South Deep. The derivative structure covers a significant portion of the company’s expected production out to 2014, with calls written at prices much lower than current prices. Ouch.
In an attempt to mitigate this bad luck, call options were purchased in 2003 at higher prices, on a deferred cost basis, with payments spread out through 2014. The outstanding payment balance at year end stood at $230 million, but the total present value for the option premiums payable, plus projected losses on outstanding derivative positions, are at least $400 million.
Western Areas – currently sitting with an auditors’ “emphasis of matter” – is in the market with yet another rights issue, to raise around R700 million. However, beneath this seething morass, the links lead back to Inkwenkwezi. It was the 2004 JCI annual report (to March 31), signed off in October last year, which contained clues about the current meltdown in Kebbledom.
According to JCI, on June 9, 2004, JCI and R&E undertook to lend Inkwenkwezi “sufficient Western Areas shares” to raise the necessary funding for the acquisition of 13.7 million Western Areas shares (11.6% of the total) from Anglo American. Inkwenkwezi, it was said, had to pay Anglo American by November 1, 2004.
Just a few paragraphs later, JCI stated that “Inkwenkwezi has a 12-month call option on the Randgold shares,” yet nowhere else in the annual report are the “Randgold shares” explained. According to the Anglo American annual report for 2004, the group disposed of a holding of 8.5% of Western Areas for $48-m in December 2004. The name of the buyer is not disclosed.
Yet the 2004 Western Areas annual report (covering the 12 months to December 31, 2004), signed off in May 2005, categorically states that Inkwenkwezi “acquired an effective 11.6% of the equity of Western Areas.” The Western Areas annual report also states: “Inkwenkwezi empowerment transaction successfully restructured and required financing imminent” and “Discussions with an institution to finance Inkwenkwezi’s obligation are progressing, and should be satisfactorily concluded shortly.”
On April 29, it had emerged in the R&E preliminary results for 2004 that 9.9 million Randgold Resources shares had been “lent” to Inkwenkwezi. On that day, too, investors were told that Inkwenkwezi’s intended purchase of 19 million Western Areas shares from Anglo American was “currently” in its final stages.
On December 31, 2004, Western Areas’ current liabilities already exceeded its current assets by R394 million. The company has continued to hemorrhage; the last time JCI produced results, for the six months to September 2004, there was also an auditors’ “emphasis of matter.” R&E’s preliminary results for its financial 2004 year were “reviewed” as “unmodified” by its auditors, Charles Orbach & Company. If the books were good enough to sign off to investors, why will the auditors not sign off to the SEC?
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